How India’s Southern States are Powering India’s Economic Growth

How did ‘Southern India’ transform into a more prosperous and dynamic region, pulling ahead of the ‘rest of India’ in terms of economic progress? What can the rest of the country learn from this remarkable rise, and how will this growth trend shape India’s future?

Southern India’s Economic Boom: A Story of Growth & Resilience

Over the past decade, India has seen rapid infrastructure development and technological advancements. However, it is southern India—comprising states like Tamil Nadu, Telangana, Andhra Pradesh, Kerala, Karnataka, Goa, and Maharashtra—that has emerged as a leader in economic growth, significantly outpacing the rest of the country. These states, accounting for 30% of India’s population, contribute to a staggering 45% of the country’s GDP, with a remarkable per capita income growth of 10% compound annual growth rate (CAGR) between FY14-22. This has brought their average per capita income to ?2.7 lakh (approximately $3,300), a significant 50% higher than that of the rest of India.

While a decade ago, the gap between southern India and the rest of the country in terms of per capita income was 35%, the southern states have widened this margin. The question is: what has led to this consistent and extraordinary growth?

The Economic Engine of the South

Several factors have contributed to southern India's rise:

1.    Per Capita Income Surge:
Southern India’s per capita income growth has been much faster than the rest of India, creating wealthier and more economically stable regions. For instance, Telangana's per capita income has surged above $4,000, more than doubling in just six years. This rapid rise contrasts sharply with many northern states, where the economy struggles with lower productivity and income levels.

2.    Balanced Economic Growth:
The wealth in southern states is more evenly distributed. As these regions move toward becoming second-world economies, disparities in wealth between these states are narrowing. This contrasts with the rest of India, where economic inequality is growing as some regions prosper while others are left behind.

3.    Developed Economic Clusters:
Southern states have developed multiple economic hubs, with thriving industries in Goa, Bengaluru (Karnataka), Chennai, Coimbatore, and Hyderabad (Telangana). In contrast, the northern part of the country lacks such widespread economic clusters, apart from Delhi-NCR and Gujarat.

Why Has the South Pulled Ahead?

Francis Fukuyama’s analysis in The End of History and the Last Man sheds light on how trust in society drives economic development. Southern India, being a higher-trust society, has fostered a conducive environment for economic cooperation. This trust reduces the costs of doing business, allowing industries to flourish.

Additionally, southern India has dealt with its caste-related conflicts earlier than the northern regions, which still grapple with caste-based divisions in everyday business and political life. This relative social harmony in the south allows for greater inclusiveness and has enabled the rise of a middle class with broader social participation.

Southern India's Inclusive Capitalism

The inclusiveness of southern India’s capitalism is seen in industries like sugar production, where a variety of communities—Gounders, Mudaliars, Naidus, and others—are key players. This diversity is absent in northern India, where business is dominated by a narrower caste base. As Harish Damodaran, author of India’s New Capitalists, pointed out, the South benefits from the broader participation of different castes in its economy, making it a more dynamic and inclusive region.

Impact on Investment & Business

The flourishing economy of southern India has naturally attracted both Indian and foreign companies. In the post-GST world, with streamlined tax structures and improved infrastructure, businesses are increasingly choosing to set up operations in the southern states. This has led to the South becoming India’s equivalent of an East Asian economy—an efficient, high-trust, industrial hub that powers the rest of the country.

Consider the case of HDFC Bank, which has seen a 97% growth in employees in the South over the last two years, compared to 45% in the North. Similarly, Tanishq, a jewelry giant, drives nearly 45% of its demand from southern India. These success stories reflect the broader trend of companies gravitating towards the South to capitalize on its booming economy, skilled labor, and infrastructure advantages.

The Political & Social Implications

While the South is pulling ahead economically, its political representation in the Indian Parliament is disproportionately low. The southern states, despite being the main contributors to India’s GDP, hold only 177 of the 538 seats in the Lok Sabha. This imbalance is likely to trigger political discontent in the coming years, especially as the next delimitation exercise, which determines seat allocation, approaches in 2026.

What Can the ‘Rest of India’ Learn?

The lessons from southern India’s growth are clear: economic development thrives in high-trust societies with inclusive capitalism, robust infrastructure, and skilled labor. If other regions of India—especially in the North—adopt similar policies, they could potentially replicate this growth. However, without significant political and social reforms, the gap between the South and the rest of India will likely continue to widen.

Final Thoughts: A Tale of Two Indias?

As southern India races ahead, the rest of the country must grapple with the growing economic divide. How will India balance this internal disparity while striving for national unity and equitable growth? Will the North catch up, or will the South continue to pull away, becoming India’s primary driver of wealth and economic power? Only time will tell, but one thing is certain: the rise of southern India is a remarkable chapter in the nation’s growth story, and its implications will shape the future of the entire country.